Thursday, July 30, 2015

Losers Buy This Stuff

Most of the data captured about our everyday transactions isn't very exciting. Take frequent shopper cards. When I visit the Ralphs supermarket website, it highlights sales on avocados and Hunt's diced tomatoes. CVS calls my attention to deals on Glide dental floss and Neutrogena skin-care products. The stores know I buy these things because I've swiped my cards in exchange for discounts on previous purchases. This is just the kind of customer-specific record that expert salespeople at places like Neiman Marcus were keeping long before computers -- and that small-town shopkeepers used to simply remember. It's small data on a large scale.

But when you can compare all that information across millions of consumers and products and thousands of outlets, you enter the realm of big data, which can reveal previously unknown patterns. A new case in point: A paper forthcoming in the Journal of Marketing Research identifies a segment of customers, dubbed the "harbingers of failure," with an uncanny knack for buying new products that were likely to flop.

Researchers Eric Anderson, Song Lin, Duncan Simester, and Catherine Tucker analyzed more than 10 million transactions by nearly 128,000 customers of a chain selling consumer packaged goods over a two-year period. The customers represent a random sample of frequent shoppers at 111 different stores. Using this mountain of data, the marketing scholars asked whether who bought a new product made any difference to its success. Were there systematic connections between specific groups of customers and whether a new item sold well over time?

They found that strong early sales -- the traditional indicator of product success -- in fact didn't matter as much as who the early buyers were. And one startling finding was the emergence of an identifiable segment of customers more prone to buying new products destined to survive less than three years, as well as unpopular "very niche" existing products.

"Because these guys are so consistent in behavior, if you're selling to a lot of them you're really in trouble," said Anderson, a marketing professor at Northwestern University's Kellogg School of Management, in an interview.